2024-08-19 08:05:33
The annual pension increases lead one to believe that the purchasing power of pensioners is increasing. But the opposite is the case, as a new study shows.
The high inflation in the years 2021 to 2023 has permanently reduced the purchasing power of pensions in Germany. This is the result of a current study by the German Institute for Asset Formation and Retirement Provision (DIVA), which t-online has obtained. According to this study, many future pensioners will have to prepare for significant financial losses.
Although pensions have risen nominally in recent years, pension adjustments have not been able to fully compensate for price increases. Instead, purchasing power fell by 3.5 percent by 2024 – a gap that is likely to continue into the future.
According to DIVA calculations, this inflation-related pension gap amounts to between 7,000 and more than 40,000 euros less that future retirees will have at their disposal during the pension period. It was assumed that inflation and pension increases will remain at a constant 2 percent in the future.
The loss of purchasing power is greater the younger the pension contributors were during the inflation phase and the more they already earned during this phase. The gap is also larger for women because their statistical life expectancy is higher and they therefore spend a longer time in retirement. The following table shows what this means specifically for 45-year-olds in various professional groups:
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The authors of the study point out that the purchasing power gaps are likely to be even greater in reality. Firstly, the calculation does not take into account the specific baskets of goods of older people, which could be subject to higher price increases. Secondly, it does not take into account inflation during the pension period. And: It is not only the statutory pension that loses value, any private pension provision such as life insurance or savings is also affected.
“I can only advise future pensioners to think about their retirement provision very early on,” says Professor Michael Heuser, Scientific Director of DIVA. “Even now, the statutory pension is not generous, but the problem will become even worse in the future. The purchasing power gap also means that you will be able to afford less from your pension in 20 or 30 years.”
Professor Michael Heuser has been Scientific Director of the German Institute for Asset Formation and Retirement Provision in Marburg since 2020, which sees itself as an opinion research institute for financial consumer issues. He has also been a lecturer at the Paderborn University of Applied Sciences since 2009, where he teaches international management, project management and economics.
One way to fill the gap is to take out private pension insurance with a guaranteed monthly pension. “You should build in increases to counter inflation – so increase the contribution every year by 3 or 5 percent, for example,” advises Heuser. It is also possible to link it to your own income.
If you can handle a little more risk, you can alternatively set up a savings plan for a globally diversified ETF. ETFs are exchange-traded index funds that replicate an index such as the MSCI World global stock index (more on this here). This means you invest your money in around 1,500 companies in the industrialized world in one go, spreading the risk across several shoulders. If you stick with it for at least 15 years, you can also ride out crises and benefit in the long term from the high return opportunities on the capital market.
It may also be worth taking a look at the reform of state-supported private pension provision, which the traffic light coalition wants to launch in the autumn. Among other things, the plan is to create a pension deposit as a new variant, replacement or supplement to Riester – similar to the ETF savings plan described above, but with a state subsidy.
“I think it’s a very charming idea to use the productive capital of our economy so that individuals can better prepare for their old age,” says Heuser. “But there are also people who break out in a sweat when they hear the word ‘shares’. It’s therefore good that a relaxation of the guarantee obligations for insurance providers is also being discussed.”
Until now, insurers have been obliged to guarantee the full amount of Riester contributions paid in, i.e. to pay back at least the savings amounts later. This should give citizens security, but only leads to the return opportunities being limited. Without such a 100 percent guarantee, insurers could invest the contributions more profitably on the capital market. Read here what is known so far about the reform of private pension provision.